Walmart

[bevin]

Quote:

I have answered it exhaustively.

Humor me. List the exact goods or services. Your total answer amounts to

• non-USA send USA goods
• USA sends them $US bills
• non-USA use those $US bills to buy other goods

and I asked you what other goods the non-USA would by from USA, and you failed to give any reason.

The reason you are refusing to answer is simple - the list of goods and services for which the USA is the cheapest provider is practically empty, which is why the $US is falling against almost all currencies, and which is why the standard of living of American's and non-American's is converging.

Quote:

On a personal note, your inability to grasp simple economic principles baffles me.

Which principle?

Bottom line: You have failed to supply a list of goods and services that non-USA people want to buy from the USA, and are blustering to hide this simple fact.

/Bevin

[Dr. Shane]

Those that want to play dumb and pretend they can't grasp the lessons being taught ought not participate in such discussions. I have a business degree and ten years experience in international business. I am qualified to teach economics at a high school level. If I am unable to communicate the most basic principles of international economics I seriously doubt the fault lies with me. When a student is unwilling to be taught, even the best teacher is destined to fail.

[Gail]

So what is the result of this offshoring regarding the quality of the goods?

For example, I just bought a Ford Escape. Now being it a Ford, I know right off the bat that I am going to have to replace the rotors, as they are Mexican made and have a reputation of being of very poor quality. When it comes time to do so, I will invest in high performance, better quality rotors.

I do not like Chinese manufactured clothing because it just doesn't stand up well under regular usage. The lower price you pay will ensure that the quality will suffer.

[bevin]

Quote:

Those that want to play dumb and pretend they can't grasp the lessons being taught ought not participate in such discussions. I have a business degree and ten years experience in international business. I am qualified to teach economics at a high school level. If I am unable to communicate the most basic principles of international economics I seriously doubt the fault lies with me. When a student is unwilling to be taught, even the best teacher is destined to fail.

Bottom line: You have failed to supply a list of goods and services that non-USA people want to buy from the USA, and are blustering to hide this simple fact.

/Bevin

[bevin]

What is the quality impact?

Regardless of where an item is manufactured, its quality is a function of (a) its components, ( its assembly, and © its use.

Manufacturers value their brands reputation (e.g. Toyota) and try to specify the requirements on the item that will maintain that reputation - and those higher requirements come at a cost that they pass on to you - and which you are willing to pay to get the quality. They test the components that they buy to put into their products and they test their products.

Counterfeiting of reputable brands is thus a big problem - and one that they actively fight.

When they can't rely purely on reputation, then they use warranties to get the same effect.

When you buy something that has neither a reputable brand nor warranty, what you get is what you get. Shops typically offer their own reputation or warranties and thus choose their suppliers carefully.

So, buy based on reputation and warranty - and be careful not to buy a counterfeit.

There are shoddy goods made and sold world-wide. You don't get more than you pay for.

/Bevin

[Dr. Shane]

Quality is controlled by management. Hourly workers will only produce the quality that management makes them produce. In one study a General Electric maquiladora that paid workers $2/hour produced less defective goods than its sister plant in the US that paid union workers $35/hour. It isn't the wage that makes the difference. There are other situations that are exactly the opposite where union workers are producing better quality than maquiladora workers. It is all about management.

[Dr. Shane]

Here is the question and answer...

BEVIN: And why should China or some other cheap source of labor send goods here?

SHANE: A producer of goods will sell them to any market willing to buy them. The exception to that would be for political reasons such as boycotts.

BEVIN: Right. Buy them. Which is a fancy way of saying TRADE for the them. Which is a fancy way of saying WE GIVE THEM SOMETHING. What are we going to give them?

SHANE: China has used US dollars to manipulate their own currency...

It is that simple. China sells products to the US because they want our money!!! They don't sell to us because they want the George Foreman barbecue grill. They are not after Black Hills gold or a Ford pick-up. They want our money. It is the same reason Hugo Chavez sells us his oil. Venezuela doesn't need anything from us. Hugo doesn't want a new Cadillac or Washington State apples. He wants our money. It is all about getting more American dollars. Anyone that can't grasp that has no working knowledge of international economics.

[Bravus]

The problem arises, then, when they stop wanting your money, right? But the fact that the US $ is falling against other major currencies at the moment may suggest that that moment is arriving. (It likely won't (we hope) be a sudden crash, just a gentle easing of demand over time.) The subprime mortgage bomb might cause some further pain in the economic arena in the US.

Um, what was the thread about again?

[Dr. Shane]

The value of the dollar has been falling primarily because as the demand for it increases, the Federal Reserve prints more. At this point, the Federal Reserve could increase the value of the dollar almost overnight if it chose to.

However it is correct that if the demand for US dollars fell off dramatically, it would have a profound impact on the the US economy. If it happened overtime, it would just be a slow adjustment and no major crisis. If it happened suddenly, the US would have a crisis situation.

BTW: When an American contractor builds a $20 million construction project in Mexico either the owner of the project or the contractor will have to pay approximately $100,000 to have the pesos changed into dollars. Is that free?

[Dr. Shane]

Just to take the thread a little more off topic.

I have read that the Iraq War is about keeping oil producing companies selling oil in US dollars. It is a bit of a conspiracy theory but gave me a lot to think about. Crude oil is only sold in Euros and US dollars on the world market. So anyone wanting to buy oil on the world market needs to first buy either Euros or US dollars. That means increased demand for those currencies. Every nation on earth needs oil. Without it crops don't get planted, minerals don't get mined. So unless a nation has their own supply, they have to buy US dollars or Euros. So if for some reason that was about to change, and invading Iraq prevented it, I guess that could have been a reason.

[bevin]

Why do they want our money, Shane?

Today they are using it to buy oil, iron, etc. from other countries - which simply moves the $$$ to the other country.

Why does the other country want the $$$?

Because today they are using the $$$ to buy (a) high-tech weaponry, ( shares in American companies, © various goods that can currently only be bought here, and (d) the know-how to produce such goods for themselves.

So the goods are all getting alternative suppliers, and the American companies aren't worth what they were, and their profits are being shipped overseas

So we are seeing two effects

(a) goods in general are getting cheaper

( the difference between USA and other economies is shrinking

If it wasn't for the goods getting cheaper, the effect would be to decrease the USA standard of living, but the cheap goods are buffering that effect - how much and for how long remains to be seen

/Bevin

[bevin]

Quote:

So anyone wanting to buy oil on the world market needs to first buy either Euros or US dollars

Why? It is simply a transaction between the producer and the consumer, and they can use any currency they like for the transaction. Just because the PRICE IS QUOTED in $$$ does not mean the TRANSACTION has to be in $$$. Both sides just have to agree on the equivalent amount in some currency of choice.

When you travel to Russia, you will find that the hotels and food are quoted in "currency units", and the exchange rate varies from day to day - but you don't pay in "currency units", you pay in rubles or dollars or yen or whatever...

/Bevin

[bevin]

Quote:

At this point, the Federal Reserve could increase the value of the dollar almost overnight if it chose to.

How?

[Dr. Shane]

Wow! Sounds like I need to give an entire course in economics. Problem is that when students already think they have the answers, they don't make very good students. They don't normally learn very much either.

When I was struggling with college algebra I went to my professor for some help. He told me my problem was that I thought I knew something about algebra. He was actually kind of nasty when he spoke to me. I had failed two tests already and had four more to take and my grade would be determined entirely by my test scores. He told me I needed to forget everything I ever learned about algebra, do my homework and ask questions in class. When I left his office I went and dropped every other class I was taking (it was a summer session). I did as he had said and received a B in the class.

The value of the dollar is determined by multiple things.

• Investment in American firms
• Interest rates set by the Federal Reserve in contrast with interest rates set by other world banks
• Speculation caused by US deficits
• US inflation rate
• Ability to purchase goods and services
• Supply of dollars in contrast to demand for them

I can't think of anything available in the US that isn't available in another country. However because of the US capitalist system, our prices are cheaper for many products. Compare the price of gasoline in the US with that in the UK or Japan. Even music CDs and clothing are cheaper. Here along the border, our retail stores are filled with Mexican shoppers crossing the boarder to buy our goods - many of the goods imported (many from Mexico!). Why is it that a Mexican can buy Mexican goods cheaper in the US than in Mexico?

The way the global economy is set up today, it is in the interest of most of the US trading partners to maintain the US dollar strong. That may change over the coming decades but such change is likely to occur slowly. If the dollar falls too much, it will become cheaper for Americans to produce many of their own goods which will hurt the economies of those now selling goods to America. So nations like China and these others that have low labor costs, have a vested interest in maintaining the value of the dollar high. One of the principle ways they do that is by investing in American firms and financing American debt.

Of course Ben Bernanke could increase the value of the dollar overnight by simply shutting off the presses. But that would have other unwanted consequences.

[bevin]

Quote:

However because of the US capitalist system, our prices are cheaper for many products.

This statement contains two serious flaws in two clauses - great going for a teacher.

(1) The prices are NOT because of the capitalist system.

The Western countries and most developed countries are also capitalist. http://en.wikipedia.org/wiki/Capitalism

You promptly turn around and compare the prices of gas BETWEEN TWO CAPITALIST COUNTRIES and show they are not the same.

(2) The prices, when correctly calculated, are not significantly cheaper in the USA.

When a person buys a gallon of gas, they are (a) buying fuel along with its associated production and distribution costs AND ( paying taxes. This is why there is a difference in fuel prices within and between US states.

The gallon of gas in Europe includes a huge tax bill. This is deliberate social policy and it means that you can't just compare the prices of a gallon of gas at the pump. In neither country is the person JUST buying a gallon of gas - in the USA you are also paying a highway tax, and in Europe you are paying towards highways and health care and ...

Furthermore you cherry-picked the data.

You did not, for example, compare the cost of car insurance in the USA v New Zealand, or the cost of a doctor's visit in the USA v India, or the cost of a DVD in the USA v Beijing, or the cost of an acre of land in the USA v Malawi or the cost of a skilled weaver in the USA v Mali - all of which would have shown that the USA's prices were much higher than the rest of the world.

Quote:

One of the principle ways they do that is by investing in American firms and financing American debt.

Agreed. But this means that even more American $$$ flow their way as they collect their dividends etc.

Quote:

Ben Bernanke could increase the value of the dollar overnight by simply shutting off the presses. But that would have other unwanted consequences

I could have my finger nails cut in India if I were to cut off my hand and airmail it to them.

What % of the USD in circulation is the amount printed each year?

http://en.wikipedia.org/wiki/United_States_dollar

There is $760B in currency circulating.

http://www.moneyfactory.gov/document.cfm/18/106

Only about 5% of the printed money is "new" - the rest of it is replacing worn out bills.

This represents about $9B/yr new money - who gets to spend these newly printed dollar bills?

Furthermore this would not serously change the value of the USD, since most people don't use the USD notes - they use bank accounts and debts and credits.

/Bevin

[Dr. Shane]

Ouch! I am convinced now more than ever that your scientific thinking is fundamentally flawed. It is called circular reasoning. You have already decided what you are going to believe before you enter a discussion. Your ideas on economics are seriously flawed and although I am not a man of science, I now seriously doubt anything you say about it either. A man that thinks he knows everything has nothing to learn.

It is true that gasoline is higher in the UK and Japan because of taxes however those taxes are a result of straying from capitalism and into socialism. Wal-Mart is the epitome of capitalism and a fine example of why things are so cheap in the US. One of my business professors was from Croatia and told me he could not believe how cheap things were in the US. Taxes is a large part of it but so is our wholesale/retail/distribution process. That is a large reason why Mexican goods are cheaper to buy in the US than in Mexico. In a capitalistic society business is successful by making their products and services affordable to the masses. The less intervention by the government there is, the more successful businesses will be in doing that.

Remember when foreign countries invest dollars in American firms, that is a cash flow of dollars back to the US which is not accounted for in our trade deficits. So it is true that these investments pay them dividends, much of those dollars come back to the US in the form of investments, which it is in their own interest to make.

Much of the value of the dollar is speculation, which is why the deficits hurt its value. If Ben Bernanke were to shut off the presses that would result in dramatic speculation. If he continued burning old notes without replacing them, that would cause even more. However it could easily cause a recession or worse. Ben Bernanke could also play with the value of the dollar through interest rates but that too could easily cause a recession. In the grand scope of things Ben Bernanke has more influence on the value of the dollar than any other individual and yet there was virtually no controversy during his Senate confirmation hearings. The Senate was more concerned with Supreme Court nominees than the world's most powerful banker. That strikes me as odd.

[bevin]

Quote:

Taxes is a large part of it but so is our wholesale/retail/distribution process

We are discussing which goods that someone in China would rather buy from a USA supplier than from a non-USA supplier.

What you are saying here is that the path from producer to consumer in the USA is cheaper than elsewhere. That may be true, in some cases, but it doesn't help the person in China who is trying to buy the item.

In their case it is cheaper to buy it from the producer in the same town.

So, you have still failed to supply a list of goods that is better for a inhabitant of China to buy from the USA rather than to buy locally.

Quote:

Remember when foreign countries invest dollars in American firms, that is a cash flow of dollars back to the US which is not accounted for in our trade deficits.

Of course it isn't, because when I loan you money, it is not INCOME to you. I thought you said you understood economics.

/Bevin

[olger]

Hi. Yes. I shop at WalMart all the time. Next question please.

olger

[there buster]

Quote:

the late Milton Friedman: There has been a large inflow of investment into the US because it is a very attractive place to invest. The only way to invest in the US is by selling the US more than you buy from the US. So the capital account surplus is the opposite side of the trade deficit.

What others want to buy most is an interest in the US economy itself.

And as Friedman indicates, all this opining about trade deficits is simply a distorted focus on one side of the ledger. Accounts always balance somehow.

[Dr. Shane]

The terrorists understand these simple economics. They not only boycott American products, they also boycott American investment. Of course that doesn't make economic sense in many cases but they are motivated by religious hatred and not economics.

[bevin]

Amazing - so far Shane has managed to ignore a simple question, and bring up my personal beliefs in evolution, and terrorism...

Oh well, I guess we never are going to find out any actual item that the US can continue to produce cheaper than the rest of the world - which means that the US and many other economies in the world are basically going to converge to about the same standard of living

Which is a good thing

/Bevin

[Bravus]

Though that assumes the US won't use its military hegemony to prop up its economic hegemony - not a very safe assumption.

[bevin]

Agreed - which is why every sensible country out there is deciding whether to let the USA do that (eg: Australia, NZ), to form a competing alliance (Western Europe), or to go nuclear (Brazil, Argentina, North Korea)...

/Bevin

[Dr. Shane]

Quote:

so far Shane has managed to ignore a simple question, and bring up my personal beliefs in evolution, and terrorism...

You are a cyber bully. You try to intimidate, insult and degrade those that disagree with you. For those of us that understand economics, you have demonstrated how little you actually grasp. Your attempts to insult me have actually only dug your hole of ignorance deeper and deeper. It seems you have educated yourself with anti-American propaganda that no one is teaching in the classroom. You may know how to program computers and save lives but you are no businessman and have demonstrated that well in this thread. You are not even asking the right questions. You will never be able to learn anything until you can admit you don't know everything.

[Bravus]

Play nice boys - you know I love you both.